1) A stock you are evaluating just paid an annual dividend of $3.00. Dividends h

Question

1) A stock you are evaluating just paid an annual dividend of $3.00. Dividends have grown at a constant rate of 1.3 percent over the last 15 years and you expect this to continue.

If the required rate of return on the stock is 16.1 percent, what should the fair value be four years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

2) Calculate the present value of the following annuity streams:

$8,000 received each quarter for 6 years on the last day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

b) $8,000 received each quarter for 6 years on the first day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

If the required rate of return on the stock is 16.1 percent, what should the fair value be four years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Calculation of the Fair value D1 = 3*101.3% 3.039 Calculation of the fair value Price = D1/ Ke-g 3.039/.161-.0130 3.039/.148 20.53378 The price would be $ 20.53

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